Freedom Line Blog

In recent days, we at CFIF have marked the ignominious one-year anniversary of the Biden Administration’s misnamed “Inflation Reduction Act” (IRA) by noting its particularly negative impact on pharmaceutical innovation and, in turn, the nation’s health and wellbeing.

As acknowledged by the United States Senate Committee on Homeland Security  as well as groups like the American Cancer Society, Americans are already confronting alarming and unprecedented drug shortages in the wake of the IRA.

To mark today’s date of September 13 – or 9/13 – it’s appropriate to note a different but significant 9-13:  That refers to the indefensible distinction that the IRA makes between what are known as “small-molecule” and “large-molecule” drugs.

Specifically, the IRA imposes destructive price controls on small-molecule drugs merely 9 years following Food and Drug Administration (FDA) approval, while waiting 13 years to impose those price controls on large-molecule drugs.  Although price controls of any duration and of any type only serve to create shortages and discourage innovation, that baseless disparity in the IRA needlessly discourages investment in small-molecule pharmaceuticals.

As cogently stated by leading scientific and medical expert Daniel Skovronsky in STATReports, it’s imperative that Congress correct that unjustifiable 9-13 distinction:

[T]o researchers like me, a provision in the recently enacted Inflation Reduction Act is puzzling.  For no clear reason, it draws a distinction between large and small molecule medicines.  As part of the IRA’s Medicare price control provisions, price negotiation for small molecule medicines is allowed nine years after Food and Drug Administration approval compared with 13 years for large molecule biologics.  There is no scientific reason for this distinction, and it will have a real and detrimental impact on drug discovery and patient care.  Nine years is not enough time to recoup the deep investments into small molecule R&D before government price controls take effect.  As a result, companies will deprioritize small molecule programs, lowering the potential to create drugs using these technologies.  Congress should correct this imbalance by allowing negotiation after a full 13 years for both small-molecule medicines and their large-molecule counterparts.”

There’s simply no sound basis for that 9-13 small-molecule/large-molecule differential, and on 9/13 we urge Congress to correct this error.

CFIF recently marked the ignominious one-year anniversary of the Biden Administration’s misnamed “Inflation Reduction Act” (IRA), whose title even Biden himself admitted was mistaken.

We noted how, as a result of the IRA, drug shortages have already reached record highs, increasing by 30% between 2021 and 2022 alone, according to a report in March from the Senate Committee on Homeland Security and Governmental Affairs.  Another report from the American Cancer Society also sounded the alarm on emerging drug shortages, caused in part by drug price control policies.  Thus, just one year in, drug shortages have reached record levels under the looming threat of drug price controls, weaker intellectual property protections and regulatory browbeating.

This week, as reported by Politico, the same Biden Administration that called inflation “transitory” and insists in the face of public blowback that “Bidenomics” is somehow succeeding announced that it will soon release the first ten prescription drugs selected for its destructive price control scheme:

President Joe Biden has sought to sell health policies like the new Medicare negotiation program as part of a broader ‘Bidenomics’ agenda set to underpin his reelection campaign.  The drug pricing push, he has argued, will help counter inflation and boost the economy by slashing the amount Americans have to shell out each year for critical medicines, although prices negotiated on the first set of drugs won’t take effect until 2026.”

Given Biden’s shoddy record for accuracy and competence so far, Americans will be forgiven for their skepticism.  As we noted, the consequence of price controls will be shortages and less innovation, which we’re already witnessing.  Americans aren’t buying this “Bidenomics” pitch, and will pay a heavy price unless and until these dangerous drug price controls are reversed.

“The record of price controls goes as far back as human history.  They were imposed by the Pharaohs of ancient Egypt.  They were decreed by Hammurabi, king of Babylon, in the eighteenth century B.C.  They were tried in ancient Athens.” -Henry Hazlitt

Today marks the one-year anniversary of Joe Biden’s misnamed “Inflation Reduction Act” (IRA), which even he now admits shouldn’t have carried that title.

Beyond Biden’s own regrets, however, Americans deserve to understand its destructive impact on our healthcare system and world-leading pharmaceutical innovation sector.

Namely, our traditional market-based approach has resulted in an unrivaled legacy of pharmaceutical innovation and abundance relative to the rest of the industrialized world.

For example, the United States accounts for approximately two of every three new lifesaving drugs introduced worldwide, meaning that we alone create twice as many new drugs as the entire world combined.  As another illustration, American consumers enjoy a substantially higher availability of critical drugs compared to people in other advanced economies.  Of 270 new medicines introduced domestically since 2011, only 52% of them were available to our neighbors just across our northern border in Canada, 41% in Australia, 48 % in Japan, 53% in France, 64% in Britain and 67% in Germany.

Destructive drug price controls, however, maintained an illogical appeal for the Biden Administration and the political left.

They can’t say that they couldn’t have foreseen the downsides of the IRA.  Amid debate over broad drug price controls back in 2021, a University of Chicago study warned of their potential negative impact on future drug innovation and availability:

The United States has far fewer restrictions on price than other countries, but the Biden Administration has announced their goal to lower drug prices through greater price regulation. …  [N]ew drug approvals will fall by 32 to 65 approvals from 2021 to 2029 and 135 to 277 approvals from 2030 to 2039.  These significant drops in new drug approvals will lead to delays in needed drug therapies, resulting in worse health outcomes for patients.  

Several years earlier, even the United Nations World Health Organization (WHO) similarly warned about the consequences of government price controls and intellectual property violations:

[P]rice controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.  

Disregarding those warnings and textbook economic logic, the Biden Administration and Pelosi-Schumer Congress plowed ahead with the IRA, whose drug price control provisions President Biden bizarrely trumpets as a 2024 reelection theme.  From branded drugs to off-patent older generics, the Biden Administration accelerated government efforts to artificially target drug prices, oblivious to the foreseeable consequences.

We’re now suffering the consequences of that agenda.

Drug shortages have already reached record highs, increasing by 30% between 2021 and 2022 alone, according to a report earlier this summer from the Senate Committee on Homeland Security and Governmental Affairs:

Shortages of critical medications continue to rise – including drugs used in hospital emergency rooms and to treat cancer, prescription medications, and even common over-the-counter treatments like children’s cold and flu medicine.  The number of active drug shortages in the U.S. reached a peak of 295 at the end of 2022. …  Between 2021 and 2022, new drug shortages increased by nearly 30 percent.  At the end of 2022, drug shortages experienced a record five-year high of 295 active drug shortages.  

Separately, a new report from the American Cancer Society warns of emerging drug shortages, caused in part by drug pricing policies:

Chemotherapy drugs used to treat cancer are increasingly in short supply and have returned to the list of top-five drug classes affected by shortage.  Expanded demand, supply shortages, limited manufacturing capacity, and low profit margins for generic therapies are among the factors resulting in the current nationwide shortage.  …  A number of the drugs included in the shortage don’t have an effective alternative.  As first-time treatments for a number of cancers, including triple-negative breast cancer, ovarian cancer and leukemia often experienced by pediatric cancer patients, the shortage could lead to delays in treatment that could result in worse outcomes.  

Accordingly, drug shortages have reached record levels under the looming threat of drug price controls, weaker intellectual property protections and regulatory browbeating.

Instead of perpetuating the IRA’s spiral of price control insanity, elected leaders should return to the more market-oriented approach that brought unrivaled innovation before more Americans pay the needless cost.

For years we’ve warned how drug price controls – as with price controls on any product or service – don’t reduce prices so much as they inevitably cause shortages and stifle innovation.

Europe and other advanced economies imposing socialized drug price controls suffer dramatic shortages compared to the traditionally more market-oriented United States, and now in the wake of the misnamed “Inflation Reduction Act” (IRA), the U.S. is already experiencing unprecedented drug shortages.

This is literally a matter of life and death.

A new analysis from Vital Transformation offers the latest detail on how the IRA’s drug price controls, and the proposed “Smart Prices Act” (SPA) seeking to expand them, will stifle innovation in the field of lifesaving pharmaceuticals:

Looking forward, we estimate that the expanded government price setting could result in roughly 230 fewer FDA approvals of new medicines over a ten-year period, once the impacts are fully reflected in the pipeline.  Impacts will be felt most heavily in many areas of unmet need, including rare disease, oncology, neurology, and infectious disease.”  (Emphasis added.)

Indeed, Vital Transformation’s study illustrates how many of the drugs currently targeted by the IRA’s price controls would’ve never come to market had the price controls existed at the time:

Had the drug pricing provisions of the SPA been in place prior to the development of today’s top-selling medicines, we estimate that 82 of the 121 therapies we identified as selected for price setting would likely have not been developed.”

In addition to price controls’ impact on lifesaving drug innovation, the new study also helpfully highlights the negative economic and job effects of these price controls on the U.S. economy and employment market:

We modeled the impacts on industry revenues and future R&D investments and estimated future lost innovation impacts including the impact on industry jobs.  We estimate a loss of between 146,000 – 230,000 direct biopharmaceutical industry jobs and a total of 730,000 – 1,100,000 U.S. jobs across the economy if the proposed IRA expansion were to be implemented.”

All of this, of course, simply confirms what analysts have known for decades.  A 2021 University of Chicago study warned in equally stark terms how drug price controls will dangerously reduce drug innovation and availability:

The United States has far fewer restrictions on price controls than other countries, but the Biden Administration has announced their goal to lower drug prices through greater price regulation.  …  [N]ew drug approvals will fall by 32 to 65 approvals from 2021 to 2029 and 135 to 277 approvals from 2030 to 2039.  These significant drops in new drug approvals will lead to delays in needed drug therapies, resulting in worse health outcomes for patients.”

Believe it or not, even the United Nations World Health Organization (WHO) issued the same warning of the deadly consequences of government price controls and weaker patent protections:

[P]rice controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.”

The evidence and real-world impacts are frankly beyond dispute.  Accordingly, it’s now up to reasonable members of the U.S. Senate and House of Representatives to oppose Joe Biden’s proposed 2024 budget and the SPA and avert the predictable deadly economically destructive consequences.

We at CFIF often warn how attempts at “drug price controls” will only succeed in killing lifesaving drug innovation, in which the U.S. leads the world without a close second.

Joe Biden’s so-called “Inflation Reduction Act” constitutes a perfect illustration, and in a Wall Street Journal piece entitled “The Inflation Reduction Act Is Already Killing Potential Cures,” USC Schaeffer Center for Health Policy & Economics fellow Joe Grogan shows how “we’re already getting signs of the damage”:

One poorly crafted provision is driving companies away from research into treating rare diseases.  In its Oct. 27 earnings statement, Alnylam announced it is suspending development of a treatment for Stargardt disease, a rare eye disorder, because of the company’s need ‘to evaluate impact of the Inflation Reduction Act.’  Alnylam’s decision turns on a provision in the Democrats’ bill that exempts from price-setting negotiations drugs that treat only one rare disease.  The company’s drug is currently marketed as treating only amyloidosis, and thus is exempt from Medicare’s price setting.  If Alnylam proceeded with research into treating Stargardt, it would lose its exemption.”

And that’s not even the end of it.  Earlier this week, Eli Lilly announced termination of a blood cancer drug because, “In light of the Inflation Reduction Act, this program no longer met our threshold for continued investment.”

Mr. Grogan proceeds to offer a must-read primer on how and why this is happening, then concludes by admonishing the next Congress convening in January to abandon this instant disaster and promote innovation instead of cheap Biden Administration talking point schemes:

The Democrats may have achieved a short-term talking point for the midterm elections, but in the long term this partisan healthcare bill will prevent patients from receiving innovative, lifesaving treatments.  A new Congress would serve Americans well by replacing the Inflation Reduction Act with an approach that recognizes the need for economic incentives to bring new treatments to patients.”

Good advice.